Tokyo – Q4/2022
MARKETINMINUTES
Savills Research

Office Leasing

Savills team
Please contact
us for further
information
JAPAN
Christian Mancini
CEO, Asia Pacific(Ex Greater China)+81 3 6777 5150
cmancini@savills.co.jp

RESEARCH
Tetsuya Kaneko
Managing Director,
Head of Research &Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp

A market searching for a landing point
Gradual recovery is underway, although uncertainty has grown in the global
economy.
• Rents have been largely flat, while vacancy rates remain
elevated in some wards.
• Average Grade A office1 rents in the C5W inched down 0.2%
quarter-on-quarter (QoQ) to JPY32,765 per tsubo2 permonth, falling 2.7% year-on-year (YoY).
• The average Grade A office vacancy rate in the C5W tightenedslightly by 0.2ppts QoQ, but rose 1.1ppt YoY to 3.9%.
• Average large-scale Grade B office3 rents inched down 0.7%
over the quarter to JPY24,469 per tsubo per month anddeclined 4.2% YoY.
• Vacancy rates in the Grade B market tightened 1.1ppts over thequarter to 3.7%, but still rose 0.1ppts YoY.
• With Japan having entered an endemic state, office demandis likely to keep growing on a gradual pace and help market
recovery, although the slowdown of the global economy isweighing down on the outlook.
1 Grade A offices refer to buildings with a GFA of 9,000 tsubo (30,000 sq m) and abuilding age of less than 15 years. Some buildings that do not fit this definition are
included.
2 1 tsubo = 3.306 sq m or 35.583 sq ft.
3 Large-scale Grade B offices refer to buildings with a GFA of 4,500 tsubo (15,000sq m) and a building age of less than 25 years. Some buildings that do not fit thisdefinition are included.

savills.co.jp/insight-and-opinion/“Overall, 2022 has continued
to see small rental corrections
with vacancy rates remaining
elevated in some wards.
Although there was somepositive economic news andthe pre-leasing of 2023 supply
is sound, gloomy prospects
for the global economy areshrouding the market outlook.
With a large wave of supply
in 2023, bifurcation in themarket is likely to continue.”
SAVILLS RESEARCH & CONSULTANCY

1

Yoshihiro Kanno
Senior Manager,
Research & Consultancy+81 3 6777 5275
ykanno@savills.co.jp
Simon Smith
Regional Head of
Research & Consultancy
Asia Pacific+852 2842 4573
ssmith@savills.com.hk
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Office Leasing

GRAPH 1: Office Rents and Vacancy in Tokyo’s C5W*,
2011 to Q4/2022
Average Grade B Vacancy
Average Grade B Rent (LHS)
16%

35,00014%

30,00012%

25,00010%

20,000

8%
6%
4%

5,000

2%

0

0%
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3

15,00010,000VACANCY RATE

RENT (JPY / TSUBO / MONTH)

Average Grade A Vacancy
Average Grade A Rent (LHS)
40,00011

12 13 14 15 16 17 18 19 20 21 22
Source Savills Research & Consultancy* Chiyoda, Chuo, Minato, Shibuya, and Shinjuku

GRAPH 2: Grade A Office Rental Index by Ward,2011 to Q4/2022
ChiyodaShinjuku

210

Chuo
ShibuyaMinatoAverage

Q1/2012 = 100

190
170
150
130
110

Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3

90
11

12

13

14

15

16

17

18

19

20

21

22

Source Savills Research & Consultancy

GRAPH 3: Grade A Office Vacancy by Ward,
Q2/2021 to Q4/2022

11%

Q2/2021
Q2/2022

Q3/2021
Q3/2022

Q4/2021
Q4/2022

Q1/202210%9%GRADE A OFFICEThe Grade A office market has remainedlargely steady, with rents inching down
by a slight 0.2% over the quarter Q4/2022
to JPY32,765 per tsubo, resulting in anannual decline of 2.7%. Consequently, thetotal rental correction from the peak seen
in Q2/2020 reached 13.4% for the Tokyo
Grade A office market in the central fivewards (C5W), although the pace of rental
corrections has noticeably slowed down inrecent quarters. Although the last quarter
saw a pause in rental corrections, that was atemporal situation triggered by the additionof a few new offices that have above averagerents.
At the ward level, Minato saw a rental
correction of 0.9% QoQ in Q4/2022, thelargest among the C5W. On the other hand,the average rents in Shinjuku and Chuoedged up 0.3% and 0.2% QoQ as someoffices raised rents. Additionally, Shibuya’s
rents remained unchanged this quarter,
demonstrating its continued strength.
The average vacancy rate held up at
3.9%, a slight tightening of 0.2ppts QoQ,
although it loosened 1.1ppt YoY. Chiyoda,
Minato, and Shibuya recorded decreases invacancy rates, while Chuo and Shinjuku saw
a further loosening this quarter. That said,
with the exception of Chuo, vacancy rates
remain low across the submarkets, ranging
from 1.7% to 3.3%. Although Chuo has a highvacancy rate of 9.7%, this is rooted primarily
in the opening of Yaesu Central Tower inthe last quarter, and it should be noted that
this new tower seems to be gaining traction
toward its full opening in spring 2023.
Indeed, discounting the impact from Yaesu
Central Tower, Chuo’s vacancy would be amuch more moderate 5.8%.
Overall, the market is attaining a stateof stability, continuing its ongoing trend.
Although the market keeps seeing corrections,they are gradually becoming more moderate.
In fact, a majority of buildings have not seen
any rental declines, with some even raising
rents in recent quarters. As discussed laterin this report, the further transition tonormalisation is expected to prop up themarket going forward.

8%
7%
6%
5%
4%
3%
2%
1%
0%
ChiyodaChuo

MinatoShinjuku

Shibuya

LARGE-SCALE GRADE B OFFICES
In general, the large-scale Grade B market
has continued to move in tandem with theGrade A market. Rents in the large-scale
Grade B market inched down 0.7% QoQ and
4.2% YoY to JPY24,469 per tsubo. Similar to
the Grade A market, the total rental decline
from the peak seen in Q2/2020 accumulated
to 14.6%. At the ward level, Shibuya
demonstrated its strength with its average

Source Savills Research & Consultancy

savills.co.jp/insight-and-opinion/2

rents growing 0.1% QoQ while Shinjuku saw
this quarter’s largest decline of 2.3% QoQ.
As for vacancy rates, the large-scale
Grade B market saw a moderate tighteningof 1.1ppts QoQ to 3.7%. The average vacancy
rate in Minato remained high at 9.2% asseveral Grade B office buildings in the ward
continue to have large amounts of vacant
space. Meanwhile, Shibuya still maintains
the lowest vacancy rate among the C5W at
1.0% after a tightening of 0.8% QoQ.
Overall, the large-scale Grade B officemarket has also continued a trend of
corrections becoming more gentle that has
been ongoing for the past year. While theaffordability of large-scale Grade B offices is
attractive for some tenants, older buildings
in inconvenient locations are expected tocontinue to struggle. The bifurcation of themarket is likely to deepen as tenants favour
buildings that have suitable features forhybrid work.
GRADE A RENTS AND VACANCYRATES BY WARD
ChiyodaChiyoda’s rents have seen a moderate declineof 0.4% QoQ and 4.2% YoY to JPY39,339 per
tsubo. Meanwhile, vacancy rates tightened
0.7ppts QoQ, but edged up 0.2ppts YoY to
1.8%. While several office buildings in theward still have large vacancy rates, manysaw some improvements. The total rental
correction of the ward since its peak inQ2/2020 is 10.2%, which is better than the
C5W of 13.4%.
This quarter, it was reported that KDDIwill be consolidating several office locations
into Garden Air Tower and the Iidabashi
i-Mark Building in Chiyoda in March andApril of 2023, while returning about 2,300
tsubo of office space currently spread acrossSumitomo Fudosan Iidabashi First Tower
and the Nichirei Suidobashi Building.
Elsewhere, Meiji Yasuda Life Insurance
is reportedly considering moving into
Marunouchi Trust Tower. Although it isunclear as to which office buildings it ismoving from, Meiji Yasuda Life Insurance
has multiple offices in Chuo which might beconsolidated in this relocation.
Overall, Chiyoda continues todemonstrate its stability, supported bya high concentration of large, blue-chipcompanies in the ward. Going forward, there
will be some dislocated demand from theplanned demolition of the Kokusai Building
and the Teigeki Building in the area, whichshould help to fill vacant spaces in nearbybuildings. Distance from major stations will
likely be a primary factor that influencesbuilding performances in the ward.

Office Leasing

Chuo
Chuo saw average rents increase over the quarter,
growing 0.2% QoQ to JPY31,897 per tsubo,
although it still posted an annual decline of 1.9%.
This quarterly growth followed another rental
increase seen in the previous quarter, which
was mainly caused by an addition of newly built
buildings. Its vacancy rate remains the highest
among the C5W at 9.7% primarily due to Midtown
Yaesu Central Tower, which still has uncommitted
space. That said, the tower is gradually filling
the remaining space toward its full opening in
spring. The next large additions to the area willbe the Yaesu 1-Chome project and the Nihonbashi
1-Chome project in 2025, meaning that the market
still has a few years to prepare.
In Chuo, it is reported that Bridgestone will
return 2,000 tsubo in Tokyo Square Garden,
although it is expected to keep about 3,000
tsubo in the building. Meanwhile, Miki Shoji ismoving its headquarters to Tokyo Square Garden.
Elsewhere, Honda Foundation is expected tolease about 300 tsubo in the newly completed
Yanmar Tokyo Building, and Hokkan Holdings
is reportedly to move its headquarters from
the Marunouchi Mitsui Building to the newer
Nihonbashi Mitsui Tower.
MinatoMinato saw a rental decline of 0.9% QoQ to
JPY30,516 per tsubo. On an annual basis, it was a
decline of 3.5% YoY, which was slightly higher thanthe C5W average. Meanwhile, vacancy rates in
Minato tightened moderately by 1.1ppts QoQ and2.2ppts YoY to 3.3%.
In Minato, Adidas will reportedly return
1,200 tsubo in Sengokuyama Mori Tower, which
it had been occupying since 2012. Meanwhile,
the Tokyo Shiodome Building, which had large
vacancy caused by the departure of SoftBankin 2020, is seeing positive movements. For
instance, Showa Denko is expected to relocate
to the Tokyo Shiodome Building and lease about
3,000 tsubo, while major valve manufacturer
Kitz will reportedly move its headquarters to thebuilding in November 2023, leasing 1,100 tsubo.
Additionally, Unicharm will reportedly move its
headquarters to tentatively named Tokyo Mita
Redevelopment Project Office Tower, which isslated for completion in February 2023, and lease2,400 tsubo. Earlier this year, it was also reported
that Kyocera will move to this new building,
expectedly leasing 5,600 tsubo.
As such, Minato saw gradual improvement
this quarter with vacancy rates tightening. Goingforward, the highly anticipated Toranomon
Azabudai project and Toranomon Hills Station
Tower are slated to open in 2023. Although preleasing activity appears to be progressing, we needto pay close attention to their impact on the market.

TABLE 1: Tenant Relocations, Q4/2022
ORIGIN
ChiyodaChuo

MinatoShibuya

Shinjuku

Other

7

5

20

1

3

20

4

1

1

4

1

2

16

1

3
1

DESTINATION

4

9

Chiyoda

2

8

Chuo

5

24

Minato1

4

Shibuya3

Shinjuku

8

Other

2
8

Source Nikkei RE, Savills Research & Consultancy

TABLE 2: Notable Office Leasing Transactions, Q4/2022

COMPANY

BUSINESSSECTOR

TYPE

Showa Denko

Chemical

Undisclosed

UnicharmHygieneproduct
manufacturer

HQ Relocation

Kitz

Valve
manufacturer

HQ Relocation

Sony PCL

Video content
production

HQ Relocation

Nikken Leasing

Machine rental

HQ Relocation

FORMER/CURRENTLOCATION

NEW LOCATION

Unknown

Tokyo Shiodome Building

Unknown

MinatoSumitomo Fudosan Mita Twin
Building WestTokyo Mita Redevelopment
Project Office Tower

MinatoMinatoKitz Building

Tokyo Shiodome Building

Chiba

MinatoMeguro Tokyu Building

A-Place Shinagawa Higashi

ShinagawaMinatoSanno Grand Building

Tokyo Shiodome Building

ChiyodaMinatoAPPROXIMATE SPACE
TSUBO

SQ M

3,000

9,900

2,400

7,900

1,100

3,600

1,000

3,400

1,000

3,400

Source Nikkei RE, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

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Office Leasing

MAP 1: Average Rents Per Tsubo in Selected Submarkets, Q4/2022

¥30.4

¥28.1
¥31.6

¥43.9
¥35.8

¥22.5

¥34.1

¥31.1

¥27.3

¥37.1

Source Savills Research & Consultancy
Grade A Office, average passing rent + CAM per tsubo per month in thousand JPY. Coloured areas for illustrative purposes only.

GRAPH 4: : Telework Implementation Rates in Tokyovs COVID-19 Cases, April 2021 to November 2022
Telework in place

COVID-19 positive (RHS)

75%

700,00070%

600,000

65%

500,000

60%

400,000

55%

300,000

50%

200,000

45%

100,000

40%

0
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov

800,000

NO. OF CASES

80%

2021

2022
Source Tokyo Metropolitan Government,
Savills Research & Consultancy

ShibuyaOnce again, Shibuya demonstrated its
strength as rents in the ward remained
flat. Over the quarter, the average rent was
unchanged at JPY35,238 per tsubo, although
it declined 1.3% YoY. The stable rents appear
to be supported by low vacancy rates, which
inched down 0.2ppts QoQ to 1.7%, thelowest among the C5W. Serviced offices near
Shibuya station appear to have seen sounddemand as well.
This quarter, it is reported that J Trust
will lease 860 tsubo in Yebisu Garden
Place and move its headquarters there. The
company will also consolidate its currently
scattered offices with an aim to improve
collaboration among different functions.
Although the Ebisu area was lagging in wellperforming Shibuya, it was also announced
earlier this year that Traders Holdings
will move to Yebisu Garden Place in 2023,
leasing 660 tsubo. Elsewhere, system
integrator NSW will reportedly lease 980
tsubo in JMF-Building Shibuya 02, which
is owned by Japan Metropolitan Fund
Investment Corporation, a large J-REIT.
Shinjuku
Shinjuku’s rents inched up 0.3% QoQ, but
continued to decline 3.9% YoY to JPY26,833
per tsubo, resulting in an accumulated rental
correction of 21.8% since the previous peakin Q2/2020. Meanwhile, vacancy rates weresavills.co.jp/insight-and-opinion/

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relatively stable at 2.9%, only slightly edging
up 0.1ppts QoQ and 0.4ppts YoY.
In Shinjuku, Rizap Group is moving its
headquarters from Shinjuku Front Towerin Kita-Shinjuku to Sumitomo Fudosan
Shinjuku Grand Tower in Nishi-Shinjuku
and is expected to lease 800 tsubo. Whileleasing activity appears to have been quiet
this quarter, Shinjuku’s stable vacancy rate
is reassuring. The office buildings proximate
to stations continue to see sound demand. In
the long term, station-front redevelopments
should help the area’s growth.
STEADY RECOVERY IN AN ENDEMICSTATE
As discussed in A Deep Dive into Tokyo
Office, the pandemic triggered a prolonged
downturn of the office market and reversed
the strong growth seen in preceding years.
Despite optimistic views in the early days,
the pandemic lasted long, and the Tokyo
office market experienced contractions
meanwhile. As such, economic improvement,
and Japanese society’s progression to an
endemic state that the market saw in 2022
is a long-awaited development that gives asense of relief.
One trend that portrays the normalcy
in the office market is a declining trend of
telework implementation rates. In Tokyo,
the rate peaked at 65% in 2021 and spiked inearly 2022 due to a surge of COVID-19 cases,

Office Leasing

but it has been generally trending downward
over the past two years (Graph 4). Especially, it
is noticeable that the implementation rate did
not significantly surge in recent months evenwith the large number of new cases, indicatingthat many companies have accepted the newlife with COVID-19. Although another wave
is approaching, the overall trend toward a
post-pandemic world is unlikely to be reversed
considering all the normalising measures thattook place.
To be sure, telework arrangements willcontinue in a post-pandemic world. However,telework policies differ from company tocompany. Overall, not unexpectedly, major
IT-related companies such as Yahoo!Japanand DeNA tend to have more accommodative
policies regarding telework. Competition for
talent is fierce in the industry, and the promiseof flexible work styles is a perk that could help
make the company a more attractive place towork. However, with tech giants’ global push for
returning to the office, the future is ambivalent.
Furthermore, the recent outperformance of
Shibuya where IT companies are concentrated
appears to suggest that tenants are willing to keep
their office space.
Additionally, reviewing recent announcementsof tenant relocations, a majority appear to becompanies that aim to improve operation byconsolidating functions typically in newer andmore convenient offices. Although companies
generally do not expect office attendance to go
back to 100%, many appear to have kept theirleased space unchanged or only moderately
reduced. As such, overall office demand is
expected to remain relatively stable, although
performances might diverge at the property level.
Overall, the transition to an endemic state isa welcome change for the recovery of the officemarket. However, as some companies decide
to make telework permanent and reduce officespace, office buildings that will not be considered
suitable for hybrid work styles will likely continue
to see soft demand. While improvements ineconomic conditions should buoy the overall
office market, the bifurcation of performances islikely to continue in the near term.
OUTLOOKThe Tokyo office market has continued to see
gradual corrections through 2022, although there
have been signs of improvements as rental declines
have significantly slowed down. While vacancy
rates remain elevated in some wards, they havebeen relatively stable across the C5W in recent
quarters. Sound pre-leasing levels at around 50%
for the 2023 supply bodes well for the market
outlook as well. New office supply is also expected
to create new office demand.

2022 marked the first year of a post-pandemic
world in Japan. Although Japan lagged otherglobal peers, it has now relaxed its bordercontrols, and office attendance has also increased.
Although the office market is not completely outof the woods, this steady recovery is expected toaccelerate market recovery going forward.
That said, a global economic slowdown islooming larger as a risk to the market. Factors
such as the conflict in Ukraine, elevated energy
prices, and inflation as well as interest rate hikes
have all weighed on the global economy. Although
Japan was fairing relatively well compared toother developed countries, it is not insulated fromthe impact. A historic weakening of the yen has
also adversely affected the consumer sentiment.
While Japanese tenants are expanding theirfloors, overseas tenants stop expanding leased
spaces. This trend is likely to go on in 2023 whenlarge supply is coming.
Overall, the Tokyo market has been fairly
stable with some signs of bottoming out in 2022.
Indeed, some properties have started seeing
rents stabilise or even edge up in recent quarters.
Nonetheless, the global economic slowdown could
introduce hurdles to the market in the near term,and demand might take longer to recover. With
uncertain market conditions continuing, the gap
between outperforming and underperforming
offices may widen even more.

Savills monitors rents and vacancy levels at more than 500 buildings located in Tokyo’s central five wards with a GFA of 3,000 tsubo (10,000 sq m) or above.
Unlike similar market information issued by other research institutions, the rental data provided relates to estimated passing rents, inclusive of common area
management fees, as opposed to asking rents. Meanwhile, vacancy figures reflect current vacant space without the inclusion of ‘expected’ vacancy, or thatreported prior to tenants vacating their premises. As a result, benchmark figures, particularly vacancy rates, tend to be lower than other market indices.
savills.co.jp/insight-and-opinion/

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